Morgan Stanley lowers India growth forecast to 5.1%

Citing high fiscal deficit and renewed weakness in external demand, Morgan Stanley today lowered India's growth forecast to 5.1% for the current fiscal year, from its earlier estimate of 5.8%. Bad times ahead

Citing high fiscal deficit and renewed weakness in external demand, Morgan Stanley on Monday lowered India's growth forecast to 5.1% for the current fiscal year, from its earlier estimate of 5.8%.

Calling for immediate policy action by the government, it warned that in the absence of such a step the GDP growth could slide even deeper - to 4.3% in 2012-13. The brokerage has also slashed the GDP growth forecast for 2013-14 to 6.1%, from 6.6% earlier.

"With continued deterioration in the macro environment, we are cutting our FY'2013 GDP growth forecast to 5.1% and our FY'2014 forecast to 6.1%," Morgan Stanley said.

"We believe there is an urgent need for policy action from the government to address the deterioration in the fiscal deficit and persistent pull-back in private investment," it added.

High fiscal deficit, coupled with strong rural wage growth and simultaneous decline in private investment, has brought a "stagflation-type environment" it said.

Part of the cut in FY'13 estimate reflects the adverse impact of poor weather on summer crop output, which typically accounts for about 7.5% of GDP, it said.

Its new projection is lower than such revisions last month by a host of global as well as domestic brokerage firms and financial services majors.

Moody's, CLSA, Crisil, Citigroup among others have slashed India's growth forecast for this fiscal to about 5.5%.